The consensus forecast of about 35 economists—primarily from major industrial firms and commercial banks in the District—who attended the Fourth District economists round table meeting on September 7 is that the economy will experience sharply reduced real growth late this year and throughout next year; unemployment is expected to rise throughout 1974. (Only two economists forecast a classical recession.) The group projects a temporary rebound in the growth rate of real GNP during the third quarter, followed by a slowing in the fourth quarter, and remaining in the range of 2 percent to 2.5 percent during 1974. Unemployment is projected to remain at 4.8 percent for the balance of this year, and to rise to 5.3 percent by the end of 1974. The rate of increase in the GNP price deflator is expected to slow to 4.3 percent by the end of 1974, largely because agricultural prices are unlikely to rise as much as in 1973.

Forecasts of a reduced rate of real growth during the near term stem largely from an expected weakening in the consumer sector, partly reflecting a projected decline in housing that will slow sales of appliances and home furnishings. New car sales are expected to decline sharply. The median forecast of seven economists whose firms depend heavily on the auto market shows a decline in new car sales on the order of one million units in 1974 (to 10.8 million). An economist with a major retailing firm headquartered in the District said they had already begun to see evidence of a softening in non-automotive retail trade. The consensus of the round table economists is that consumer spending would be weakest in the fourth and first quarters (with gains in personal consumption expenditures averaging only about $13 billion), and would remain depressed until late 1974.

The reduced growth in economic activity forecast for next year also reflects the group's projection of less stimulus from the net export balance. Following an estimated swing of more than $6 billion in the net export balance between 1972 and 1973, the economists forecast further improvement of only $1 billion in 1974. Discussion during the meeting, however, indicated that this estimate may be on the conservative side. Some economists held the view that the round table group may be underestimating future benefits to our trade balance stemming from new exchange rate relationships.

The business economists were conservative with regard to prospects for inventory investment, with the median forecast calling for the change in business inventories to reach a $9 billion rate by the fourth quarter of this year, followed by a cutback to a $6 billion rate by year-end 1974. Capital spending is expected to be strong for the balance of this year, and the projected rates of increase during 1974 suggest only a moderate easing. Following a gain of $18.8 billion this year, nonresidential fixed investment is projected to rise $15.2 billion in 1974. (There was general agreement that with the pressing need to expand capacity in so many industries, capital spending was unlikely to be choked off next year.) It was noted that with corporate profits at or near a peak, and with Phase IV and reduced growth in the economy expected to dampen profits in 1974, corporations would be forced to rely more heavily on external sources of funds to finance their capital outlays. Sentiment was that the supply of funds next year would be adequate enough (albeit at a high price) to sustain the capital spending boom.

An economist with a major steel firm reported that most steel companies continue to have their customers on an allocation basis (i.e., they are rationing new orders). One factor contributing to the tight steel supply situation has been a very sharp rise in foreign steel prices. Recently, steel imports have been either unavailable or available only at premium prices. It was ironically noted that only a few years ago there was much talk about relying on cheap foreign steel for our domestic uses. The economist also pointed out that the domestic steel industry could have exported perhaps 15 million tons in 1973 instead of an estimated 3.5 million tons, but it concentrated on supplying the domestic market first. The steel industry is expected to remain at or near peak capacity operations until mid-1974 at least.

Current savings flows at S&Ls in Ohio SMSA's are characterized as dreadful by industry sources. During August, the largest S&Ls in the Cleveland area (our sample includes 57 percent of S&L deposits in Cuyahoga County) incurred deposit outflows equal to 1.9 percent of their savings deposits. For comparison, these institutions lost 1.1 percent of their savings deposits during July and experienced a 5.4 percent increase in their deposits during the first half of 1973. A large share of the August withdrawals coincided with the Treasury's offering of the 8 3/8 percent notes. Primarily as a result of the publicity afforded this offering by the Cleveland newspapers, the Cleveland office received $42 million of noncompetitive tenders, or 75 percent of the total received. In response to the poor deposit experience, several Cleveland S&Ls have moved aggressively to attract depositors by offering the 4-year wild card certificates with current rates ranging from 8 to 10 1/4 percent. Preliminary results for the first ten days of September from two of these S&Ls indicate that the higher yielding certificates have generated a net inflow of funds.